As the year 2021 was about to set in, the global trade ecosystem faced a unique roadblock. While world economies were trying to recover, the pace was uneven from one country to another. It created an issue of container shortage. The one that the world had never seen before.
How did it all start?
Post pandemic, China was the first major economy to recover. The country accelerated its pace and resumed its export activities while the rest of the world was still reeling under the Covid impact. The condition was particularly severe in Europe and North America.
Due to the factory closures and supply constraints, these countries were not in a position to honour their export obligations. As a result, the containers that headed out of China did not return as quickly. These containers remained stuck for a prolonged period at ports. The impact was especially significant for Asian traders.
How did it impact India?
Around the same time, India witnessed a slump in imports from China as the government imposed restrictions on China due to geopolitical tensions. China being the largest importer to India, curbed activities automatically translated to a lower number of containers coming into the country. On the other hand, demand from Indian exports was constantly rising. With this demand-supply mismatch, freight charges on almost all routes increased manifold. And, even if an exporter was willing to bear this burden, container availability was not ensured as the waiting period went up from a few days to weeks and even months.
What's the solution?
India has embarked on a journey of Selfreliance in the post-pandemic world. Under this change of dynamics, export and manufacturing sectors are finally getting the attention that they deserved. Commerce and Industry Minister Piyush Goyal recently suggested that India is on track to achieve the $1-trillion export target by 2025.
For that, manufacturing is a crucial sector that the government is focusing on. As per CII, the government is looking to increase the share of manufacturing to 25% in 2025 from ~17% currently.
After the recent container crisis, the Ministry of Ports, Shipping, and Waterways is examining the feasibility of manufacturing containers at Bhavnagar in Gujarat. While other locations are also being studied upon, Bhavnagar is already a major hub for the ship-breaking industry.
Closing Comments:
Like many aspects of the trade, India is dependent on China even for the availability of containers. Incoming Chinese containers play a crucial role to cater to the demand from Indian exporters.
And, if India wants to present itself as an alternative to China, India will need to reduce this dependency.
With an increase in manufacturing, India will also need to create a strong base for its exporters. Currently, the Shipping corporation carries the majority of work to cater to India's need for containers.
However, the country continues to rely upon incoming vessels for its growing needs. This shortcoming came to the fore during the recent container crisis. And, by creating a manufacturing base, India could get rid of such dependency.
Teji Mandi (TM Investment Technologies Pvt. Ltd.) is a SEBI registered investment advisor. No information in this article shouldnot be construed as investment advice. Please visit www.tejimandi.com to know more.
